By Alison Sider
Southwest Airlines Co. is pulling out of Newark Liberty International Airport this fall as it addresses capacity constraints due to the grounding of Boeing Co.'s 737 MAX.
Southwest said Thursday that it won't plan on flying the MAX again this year, extending planned cancellations through Jan. 5. The popular plane has been grounded globally since March following a second fatal crash in less than six months.
Carriers have had to cancel thousands of flights as a result, and the problem is growing more acute as MAX planes that were supposed to have been delivered by now are being parked as they roll off the assembly line.
American Airlines Group Inc. also said Thursday that it now expects the grounding to reduce pretax earnings this year by $400 million, up from the $350 million impact it previously anticipated.
American's shares fell more than 3% in early trading. Southwest's shares also slid more than 3%.
Southwest had planned to increase flying by 5% this year but now expects to shrink capacity as much as 2%.
Southwest said it would drop flying from Newark, as it seeks to blunt the impact of those reductions, because its operations there hadn't been as profitable as hoped. A spokesman for the airline said there are no plans to return to Newark, where Southwest had up to 20 departures a day, once the MAX returns to service. Instead the airline will focus its New York City presence at LaGuardia Airport.
The grounding has had some benefits for airlines, as fewer seats at a time of robust travel demand has resulted in higher fares. Both Delta Air Lines Inc. and United Airlines Holdings Inc. raised annual profit forecasts this month. American also raised the lower end of its 2019 profit guidance.
But the grounding has also pressured airlines' costs for each seat flown a mile. Southwest said unit costs grew 7.5% in the second quarter, and it expects them to surge 9% to 11%, up from the 2% increase it had been anticipating. Fuel efficiency is also taking a hit, without the use of airlines' most efficient new aircraft. Both Southwest and American have said they would keep flying older aircraft longer to make up for the loss of the MAX.
Southwest said it would need a month or two to train pilots and get planes ready to fly once regulators clear the MAX. That means it is facing a surge of holiday travel late this year with fewer planes.
Airlines are planning to seek compensation from Boeing for the disruptions. Southwest said it has held preliminary talks with the plane maker. Boeing said last week that it will take a $5.6 billion pretax charge in the June quarter to cover potential compensation to MAX customers, which could include discounts and services, as well as cash payments.
Boeing also said on Wednesday that it could slow or suspend MAX production if the plane's grounding drags on.
For American, the MAX hasn't been the only headache in recent months. The airline has been battling with the unions that represent its mechanics, alleging in a lawsuit that the union is encouraging a work slowdown that is wreaking havoc on its operation and leading to hundreds of canceled flights. Union leaders deny that they are encouraging a coordinated slowdown.
In the latest period, American reported a profit of $662 million, or $1.49 a share, up from $556 million, or $1.20 a share, a year earlier. Adjusted earnings were $1.82 a share, in line with the $1.79 a share that analysts were expecting.
For the quarter ended June 30, Southwest reported earnings of $741 million, or $1.37 a share, up from $733 million, or $1.27 a share. Revenue rose 2.9% to $5.91 billion. Analysts, on average, were expecting per-share earnings of $1.34 on revenue of $5.94 billion.
--Aisha Al-Muslim contributed to this article.
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